Obama Administration Released Its New 'Well Control Rule' - 6 Years After BP Spill, Is It Really Necessary?

| About: Seadrill Limited (SDRL)

Summary

The Bureau of Safety and Environmental Enforcement ("BSEE") released yesterday its new well control rule, six years after the BP spill catastrophe.

The rules announced Thursday tighten the safety requirements on underwater drilling equipment and well-control operations.

I found these "new rules" cumbersome, and will add delays and costs, which is the last things that the offshore drillers need, right now.

Source: Nytimes - The Deepwater Horizon's final hours.

Yesterday, on April 15, 2016, We learned from Reuters the following:

The Obama administration on Thursday unveiled new oil well control rules to prevent the kind of blowout that happened six years ago on a BP Plc rig in the Gulf of Mexico.

The Interior Department's Bureau of Safety and Environmental Enforcement announced the finalized regulations, which include more stringent design requirements and operational procedures for offshore U.S. oil and gas operations.

The new standards come nearly six years after a deadly explosion and fire on the Deepwater Horizon oil rig off the cost of Louisiana, which led to the worst oil spill of all time.

The Macondo well blowout and the fire on the Deepwater Horizon drilling rig on April 20, 2010, killed 11 workers.

"The well control rule is a vital part of our extensive reform agenda to strengthen, update and modernize our offshore energy program using lessons learned from Deepwater Horizon," said Interior Secretary Sally Jewell.

To improve the "culture of safety" on oil rigs and prevent future spills or blowouts, the new rule tightens requirements for blowout preventers, well design, well control casing, cementing and sub-sea containment.

It also calls for real-time monitoring, third party reviews of equipment, regular inspections and safe drilling margin requirements.

Presentation:

The BOP is an important part of equipment for deepwater rigs.

Image: First 20,000 PSI rated blow out preventers from GE.

If you are interested, you can read the 531 pages of the Bureau of Safety and Environmental Enforcement ("BSEE") - Regulations-and-Guidance, Final-Well-Control-Rule on April 2016, click here (The BSEE is part of the Interior Department).

This new tougher regulation is aimed at preventing such deepwater disasters as the 2010 Macondo/ Deepwater Horizon ("BP/Transocean") well blow out and catastrophic spill. The BSEE first released its proposed well control regulations in April 2015.

The first reaction came from the American Petroleum Institute ("API") according to oilpro:

The American Petroleum Institute on Wednesday expressed concern about the impending rule, saying it "may have unintended negative consequences for safety and affect future offshore energy projects."

"The Well Control Rule will affect offshore energy projects for years to come," said Erik Milito, API upstream group director. "If left unchanged from the proposal, the flaws in the rule could lead to increased risks and decreased safety in offshore operations."

The API released an interesting study in April 2015 and issued a study about the unintended consequences of the proposed BSEE April 2016 rule, Its conclusion was:

The proposed rule is flawed and a number of provisions must be revised prior to the finalization of the rule. Industry shares the government's goal of enhancing offshore safety while producing more oil and natural gas here at home. BSEE should engage industry in workshops to have meaningful dialogue to ensure the intent of the rule is achieved, and that ambiguities and unintended consequences are addressed and mitigated. The industry stands ready to engage with the agency to work for a truly safer offshore operating environment.

The Interior Department commented yesterday that the new rule represents:

One of the most significant safety and environmental protection reforms the Interior Department has undertaken since Deepwater Horizon, and builds upon a number of reforms instituted over the last six years to strengthen and modernize offshore energy standards and oversight.

Commentary:

Congratulations! Six years after the disastrous BP spill the USA came up finally with a new set of regulations, that should be sufficient to prevent another terrible catastrophe.

In particular, the new rules will tighten controls on blowout preventers, the industry-standard devices that are the last line of protection to stop explosions in undersea oil and gas wells. The 2010 explosion of the Deepwater Horizon rig was caused in part by the buckling of a section of drill pipe, prompting the malfunction of a supposedly fail-safe blowout preventer on a BP well. The rules also add tougher requirements to the design of undersea wells and the lining that coats the wells, as well as real-time monitoring of subsea drilling and spill containment.

Both sides of the spectrum, the environmentalists, and the oil industry are not particularly impressed. Ms Jacqueline Savitz, the vice president of Oceana, an advocacy group, said:

The only way to truly ensure there will never be another disaster of the magnitude of Deepwater Horizon is to stop drilling offshore, this is especially important in the Arctic, where conditions are extremely harsh, response capacity is almost nonexistent, and where there is absolutely no way to clean up an offshore spill.

On the other hand, M. Dan Naatz, a vice president of the Independent Petroleum Producers of America, said:

Today's highly prescriptive rule could result in unintended negative consequences leading to reduced safety, less environmental protection, fewer American jobs, and decreased U.S. oil and natural gas production,

Technically, the new regulation will require that the BOP be fitted with double shear rams on deepwater rigs.

Click to enlarge

A very extensive and interesting article can be found here published in June 2010, about the Macondo incident.

When all else failed, if the crew of the Deepwater Horizon oil rig lost control of a well, if a dreaded blowout came, the blind shear ram's two tough blades were poised to slice through the drill pipe, seal the well and save the day.

Conclusion:

The move was politically motivated, and the government had to come up with something, and it finally did, six years after the catastrophe.
It is a tiny positive step toward a better safety, maybe? However, it doesn't address the main problem which is the human factor, in my opinion.

Generally, I am absolutely not in favor of more regulations and more costly controls. The industry is aware and took the necessary steps to prevent such catastrophe. No matter what will be done, the risk remains and cannot be eliminated.

I found these "new rules" cumbersome, and will add delays and costs, which is the last things that the offshore drillers need, right now.
On the other hand, it could accelerate the rig attrition, when the 5-year SPS will kick in, and push the industry to retire more aggressively the older rigs, that are not presenting the level of safety that it is required now.

The offshore Industry has been too slow to retire and scrap the oldest part of its rig fleet, thereby creating a situation of oversupply which must be addressed seriously if the industry want to survive this challenging market.

This new rules will impact more directly offshore drillers that owns, in part, an older fleet, such as Transocean (NYSE:RIG) or Diamond Offshore (NYSE:DO) and is less a problem for Seadrill (NYSE:SDRL), Pacific Drilling (NYSE:PACD), Rowan Companies (NYSE:RDC), Noble Corp (NYSE:NE) or Atwood Oceanics (NYSE:ATW) which run modern deepwater rigs.

Disclosure: I am/we are long SDRL, RIG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.